Havens in favour amid stock selloff

Earnings season gathers momentum this week, with FX considerations expected to have significant implications for the divergent fortunes of European and US stocks.

• FTSE falls back, with havens in demand
• Earnings season expected to show impact of weakening dollar
• Trump failures drive US growth downgrade from IMF

The FTSE has maintained and extended its early losses, as traders continue to move their assets into safe havens such as gold and the yen. Despite the euro and dollar largely consolidating today, the gains we have seen over recent months no doubt contribute to the underperformance seen in European equities in comparison to their US counterparts. As we move deeper into earnings season, the influence of a strong or weak currency will become increasingly apparent. Last week saw a number of big eurozone exporters suffer disappointing earnings figures, while the topic of dollar weakness is sure to be prevalent this week with 20% of the S&P500 firms declaring their latest figures.

Part of the recent deterioration in the US dollar has been associated with the impact declining US economic data will have upon the outlook for the Fed’s interest rate pathway. This morning’s US economic growth downgrade from the IMF highlights the deteriorating trajectory following a period of high expectations when Trump took office. There is no doubt that the US President has faced substantial headwinds to passing his reforms, and being such a controversial and polarising figure means there is a good chance that many of the reforms that drove the dollar and stocks higher may never see the light of day. Tomorrow sees the start of the latest FOMC meeting, yet with markets only seeing around a 50% chance that the Fed will raise rates by year end, it is clear that the focus will be focused on linguistics and talk of balance sheet normalisation.